Tesla Plans Multiple Battery Sites to Speed Up Supplies

Tesla Motors Inc. associates work on the Model S electric car at the company's factory in Fremont, California. Photographer: David Paul Morris/Bloomberg

April 30 (Bloomberg) -- Tesla Motors Inc.’s Elon Musk is
close to naming sites in at least two U.S. states for a planned
battery “gigafactory” and will break ground at each to ensure
one is ready to supply lithium-ion packs when needed.

Tesla, planning to add a mass-market electric car in about
three years, said in February that it would build the world’s
largest battery plant and is assessing sites in Arizona, Nevada,
New Mexico and Texas. Lower-cost battery packs are needed to
ensure Tesla’s proposed less-expensive model gets to market on
time, Musk said. Tesla’s home state of California isn’t a
candidate due to timing requirements for regulatory reviews.

“What we’re going to do is move forward with more than one
state, at least two, all the way to breaking ground, just in
case there’s last-minute issues,” Musk, Tesla’s chief executive
officer, said in an interview this week. “The No. 1 thing is we
want to minimize the risk timing for the gigafactory to get up
and running.”

The new plant, requiring as much as $5 billion to build and
ultimately employing as many as 6,500 people, is part of Musk’s
vision of turning Palo Alto, California-based Tesla into the
world’s dominant electric-car maker. Along with making batteries
that are 30 percent cheaper than are now available, the plant
would supply packs to Musk’s SolarCity Corp., letting homes and
buildings with solar panels store energy they generate.

Boosting Production

The carmaker named for inventor Nikola Tesla plans to boost
production of battery-powered Model S sedans at its plant in
Fremont, California, by at least 56 percent this year. Musk
traveled to China last week to mark the start of Model S
deliveries there.

Tesla raised $2.3 billion in a convertible note sale in
March to help fund the battery plant. Musk declined to say which
states are the leading candidates and when the company will
announce its decision.

“There’s no doubt that this type of sourcing strategy is
unconventional,” said Michael Robinet, managing director of
industry consultant IHS Automotive in Southfield, Michigan.
“But Tesla is good at breaking a lot of practices that are
standard in the industry.”

While starting construction at different locations with an
initial goal of using only one is unusual, Tesla may ultimately
need more than a single gigafactory in the U.S., Musk said.

“We will end up spending more money than would otherwise
be the case to minimize the timing risk,” he said.

Third-Generation Model

Tesla’s so-called third-generation car, following the
$71,000 Model S sedan and Model X electric sport-utility vehicle
due in 2015, would sell at a price comparable to Bayerische
Motoren Werke AG’s BMW 3-Series sedan, or about half the base
price of the Model S, Musk has said.

The design and preparation to produce that new model has to
be done in parallel with the gigafactory, he said in the
interview this week.

“There are a lot of moving parts, a crazy amount of moving
parts,” Musk said. “If there’s a laggard there, we’ll have
this massive facility and a ton of people trained and no ability
to recoup revenue. It will be quite a bad situation.”

California didn’t make Tesla’s list of potential sites for
the battery plant because of the amount of time needed to win
environmental and regulatory approval, Musk said.

“California has a lot of regulatory agencies, and although
this will be a very green factory, we can’t have a situation
where an enormous amount of data has to be processed by a
regulatory agency to find no significant impact and then give us
approval to proceed,” he said.

Musk had told reporters in China last week that the company
was considering two locations, the Associated Press reported.

Tesla is set to release first-quarter results on May 7. The
company may report earnings of 9 cents a share, excluding
certain items, according to the average of analysts’ estimates
compiled by Bloomberg. The average projection on a GAAP basis is
for a loss of 19 cents a share.

Tesla shares fell 0.9 percent to $205.08 at 9:47 a.m. New
York time and had surged 38 percent this year through yesterday.